Market RecapTraders generally ignored a slightly warmer top-line CPI print yesterday partly because it was driven by the known inflation driver Energy and partly because Core inflation came in line with expectations showing continued signs of moderating. What really got markets going yesterday was strong bank earnings. Financials (2.55%) led sectors, even topping each of the Mag 7 group of Consumer Discretionary (2.54%) [AMZN, TSLA], Technology (1.99%) [MSFT,AAPL, NVDA] and Communication Services (1.64%) [GOOG, META]. The only sector that lost ground yesterday was Consumer Staples (-0.34%) driven mostly by snack and drink maker shares selling off after the FDA announced it would be banning the infamous “Red Dye #3” from the US food supply.While financials topped sectors, tech was still investors’ friend as evidenced by broad equity market index returns. In order of technology company concentration (greatest to least), the Nasdaq Composite rose 2.45%, the S&P 500 added 1.83% and the Dow closed 1.66%. Further proof that yesterday was a broad rally is that the Russell 2000 gained 1.99%, and we also saw the Cboe Market Volatility Index (VIX) drop just over 13% to return to trading at just over 16.The Tematica Select Model Suite reflected yesterday’s good mood, with the only models to lose ground were Guilty Pleasure, and Cash Strapped Consumer both of which fell in sympathy with Consumer Staples. Luxury Buying Boom also had a slightly negative day as there are still uncertainties surrounding the strength of the Chinese consumer. Data Privacy won the day as BIO-key International saw shares jump almost 70% after it reported the National Bank of Egypt will be implementing the company’s products to manage identity-based access as well as an overarching governance solution.
More Big Bank Earnings, TSM Reports, December Retail Sales AheadEarly morning futures point to a continuation of yesterday’s move higher for equities, spurred on in part by consensus topping December quarter results from Taiwan Semiconductor (TSM). Moreover, TSM sees demand for AI chips remaining robust while other markets, including new smartphone chips, AI PCs, and WiFi 7 driving demand. That led the company to project March quarter revenue above market expectations and signal its capital spending in 2025 would be as much as 40% higher compared to 2024. We see that as nice positives for the companies housed in our CHIPs Act, Digital Infrastructure, and Digital Lifestyle models.The flow of big bank earnings will continue this morning, with quarterly results due from Bank of America (BAC), Morgan Stanley (MS), PNC (PNC), and US Bancorp (USB). Results and comments from JPMorgan Chase (JPM), Goldman Sachs (GS), and Wells Fargo (WFC) yesterday paint a favorable picture of what we should hear today. One area that we’ll be watching will be margins amid comments about continued technology and marketing investment. That also means listening for comments about staffing levels, especially following word Citigroup (C) is planning to reserve $600 million for severance payments in 2025 as it continues to trim its workforce and cut expenses.Today also brings the December Retail Sales report, and the market expects to see a 0.6% sequential increase in the headline figure. As we move deeper into the December quarter earnings season, we’ll be more interested in the line-item details, especially for the trailing three-month data because it will give us a nice base for corporate earnings comparisons. Based on holiday shopping findings, we should see solid performance from the non-store retail category, better known to most as digital shopping. That’s also a component of our Digital Lifestyle investing theme and model, and you can find more on that below. With a nod to our Cash-Strapped Consumer signal below, we’ll also be interested in the breakdown between grocery and restaurants found in the December Retail Sales report as well.
We will also be keeping our eyes open for today’s GDPNow model update from the Atlanta Fed. The last reading of this rolling forecast pegged Q4 2024 GDP at 2.7%, but that figure was published before last week’s blowout December Employment Report and other data since published. Barring a disastrous December Retail Sales report, odds are we’ll see an upward revision in the model, which would be a signal on top of this week’s inflation readings the Fed isn’t poised to deliver another rate cut anytime soon. While yesterday’s core CPI figure for December did come in a tad softer than expected, as you can see in the table below it’s still quite a distance from the Fed’s target on a reported basis and on a three-month moving average, which, per Fed Chair Powell, is how the Fed is looking at the data. 
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